Recession nears in New Zealand
I am here on my computer in anticipation of the morning market sessions in Asian trading. Certainly, this will set the tone for an important week. While I was looking for more news on the GSEs, I was reminded of the slowing economies around the globe by a Bloomberg report on New Zealand.
In a nutshell, the credit crisis that began in the United States as a result of subprime housing has slowed countless economies to date, many of which I have blogged about here: the US, Canada, the UK, Ireland, Spain, German, Denmark, Japan, South Africa, and Australia. Add New Zealand to that list.
New Zealand consumer-price increases probably accelerated in the second quarter, fanned by fuel and food costs, adding to signs the economy is facing stagflation as it slips into recession.
The consumer prices index rose 1.4 percent from the first quarter, according to the median estimate of 12 economists surveyed by Bloomberg News. Annual inflation was probably 3.8 percent, the fastest pace in two years. The report will be released tomorrow at 10:45 a.m. in Wellington.
Central banks from Chile to Japan are grappling with slowing economic growth while surging fuel and food prices fan inflation. New Zealand’s economy was probably in a recession in the first half of 2008, while inflation will likely reach an 18- year high by December, said economist Craig Ebert.
“We expect gross domestic product to go backward and inflation will go higher,” said Ebert, senior markets economist at Bank of New Zealand Ltd. in Wellington. “In a headline sense, there is no denying this is stagflation, although it’s not an extreme example.”
The economy contracted 0.3 percent in the first quarter. Eight of 13 economists surveyed by Bloomberg expect it also shrank in the second quarter, putting the economy in its first recession since 1998.
It is becoming increasingly obvious that the global economy has now fallen into a recession. So many housing market are contracting, so many countries are experiencing out of control inflationary forces, and so many countries are slowing that I have to call this for what it is: a global recession.
In the meantime, I am still waiting for those markets to open; Yes, I may know that we are in a global recession. However, that tells us only where we are and where we’ve been. In the end, it is much more important to know how the markets respond to the latest shockwaves in order to gauge future global growth. We are on the precipice now; global credit contraction is bringing us very close to collapse.
Update 13 Jul 2008, 2100EDT: Asia has started off well with the Nikkei up 100 points. That’s good news for the markets.
N.Z. Retail Sales Fall, Adding to Recession Signs, Bloomberg News, 14 Jul 2008